Irrational markets: people reject free money out of anger

The Ultimatum Game, in which test subjects respond to take-it-or-leave-it …

Game theory has provided researchers in a variety of fields, from psychology to economics, an opportunity to test human behaviors under controlled conditions. It allows big questions—are humans rational actors when money's on the line, for example—to be tested in situations where behaviors that deviate from expectations are easy to detect. The Ultimatum Game is one example of these experiments, and it has been used to show that humans aren't purely rational when it comes to monetary decisions, as they appear willing to make financial sacrifices in order to punish others in the name of fairness. A paper that will appear at PNAS this week takes things a step further and shows that people will still reject unfair monetary offers, even when the only one they punish is themselves.

The basic rules of the Ultimatum Game are simple. One person is given a stack of cash, and told to divide it between themselves and a second party. That second party is then given the chance to accept or reject the offer; if it's rejected, neither of them get any money. Clearly, any of this free money should be better than nothing, so under assumptions of strictly rational behavior, you might expect all offers to be accepted.

They're not. Things in the neighborhood of a 50/50 split are accepted, but as the proportions shift to where the person issuing the ultimatum tries to keep seventy percent of the total, rejections increase. By the time they hit an 80/20 split, nearly 70 percent of the offers are rejected, even though that 20 percent of the total cash would leave the recipient better off than where they started.

It's still possible to interpret this behavior as being rational within a social context. A lot of human behavior, and that of other primates, seems to be focused on ensuring cooperative behavior within small groups. The rejection of offers within the Ultimatum Game can be viewed as a form of punishment for unfair behavior. In that light, the rejection may make sense to the degree that the immediate loss of money provides a long-term incentive for fair and cooperative behavior within a group. Rational economic behavior is restored.

The new paper pretty much blows that explanation out of the water by testing individuals using a couple of variations of the Ultimatum Game. In the first, which the authors term "the Impunity Game," the person making the offer gets their share of the cash regardless of whether the offer is accepted or not. In this game, the only consequence is the potential for guilt caused by the knowledge that an offer was rejected. Rejection rates do drop, but they remain substantial—offers of an 80/20 split got rejected over 40 percent of the time (down from around 70 percent) despite the lack of real economic consequences.

To really nail things down, the authors conducted tests of a Private Impunity Game, in which the person who made the offer wasn't even informed of whether it was rejected or not—they simply walked away with their share of the cash. Here, even the nebulous hope that the person making the offer would feel pangs of guilt from its rejection was removed. Rejection rates were essentially unchanged. People keep rejecting offers they perceived as unfair, even if, like the proverbial tree in the forest, no one will hear their rejection.

In another hint of the nature of this response, the authors describe how a similar study was performed in which the Impunity Game was explained to participants as a series of if/then statements: "if A chooses X and B chooses Y, then A receives $i and B receives $j." Here, when subjects are forced to reason through the conditions to figure out that their rejections didn't cause any sort of financial punishment on the ones making the offer, rates or rejection were about the same as they are in the Ultimatum Game. This suggests that people can't even be bothered to perform a rational analysis when money is on the line, much less engage in rational actions.

The lack of objective analysis is also demonstrated by a number of results that indicate that changes in the levels of hormones and neurotransmitters—testosterone, serotonin, and oxytocin, for example—can all skew the statistics by changing the average response to unfair offers.

Given the fact there's essentially no way to provide a rational actor gloss to these results, the authors attempt to explain it through an emotional response that sounds much like a gorilla's chest beating. Our emotions commit us to these sorts of displays despite their irrational nature, and force us to follow through on them often enough to make sure everyone knows it's not an idle threat. Nine times out of 10, the chest beating may just be a display, but is anyone willing to risk the chance that a given instance will turn out to be the exception?

The problem with this explanation is that it adds a layer of complexity—a mechanism that ensures a degree of commitment to an emotional response—on top of what's essentially a simple situation: people act without thinking. Earlier this year, I attended a discussion entitled "Evolution and the Ethical Brain" in which researchers argued that our ethical decision making (such as how to respond to unfair financial offers) is performed by a system that operates in much the same way as those that respond to sensory input: they make snap judgments that allow us to respond quickly and get on with things. The more elaborate ethical debates that we engage in are largely attempts at post-hoc rationalizations of our earlier decisions.

Within this perspective, the snap judgment is that an offer is unfair. Sometimes, we can engage the post-hoc rationalization, in this case involving the economics of the situation, and override our ethical calculations. But, in a substantial fraction of the cases, we never get the chance, as we act on our snap decisions before that process can occur.

97 Reader Comments

Originally posted by TheFerenc:Flash edit: gaosuGonglu, It's like those credit card commercials: spite is priceless. But only if you think the spited individual deserves it. Spiting random strangers isn't NEARLY as much fun.

I don't know, there are plenty of random anonymous assholes on the intertubes who would be happy to rip you a new one just for the hell of it. Ditto in online games.

"In real life we have multiple dealings with others; the slate is not wiped clean when the game is over."

This is true, but it would be wise not to obsess over this point. The REAL point, IMHO, is what do we want out of life? Presumably we (that is, citizens of Western Society) want a society that is both wealthy and pleasant to live in. All the research in this area correlates wealth and a pleasant society with higher levels of trust; in other words our society works well (compared to some of the other alternative places on earth) because, for the most part, and for many purposes, we trust each other.

Enter the economists, who happily tell us that doing so is foolish behavior, that we should live life pitted all against all, that we should cheat, lie and steal whenever we can get away with it, that anything less is "irrational". Listening to these people, building a society in the image they paint, is, quite frankly, insane. Have any of you ever LIVED in a low trust society? Is that what you want? Do you want to live in a world where you are FORCED to read through every detail of every contract you sign because chances are there is some bomb buried in there specifically designed to trap you?

It is, IMHO, SUPREMELY rational for both individuals and society to punish aggressively those who act like a--holes. I'd say two political statements follow from this

- The left is frequently its own worst enemy in this respect. It is OBVIOUS that people will be really really pissed off when they hear of any cheating regarding government programs (welfare, healthcare, whatever). It is just as OBVIOUS that they will sometimes be so pissed off as to act in the same way as in this experiment --- vote for the Republicans who promise to shut down the program, using the stories of cheating as a justification. Given these two facts, the sensible thing for any reasonable leftist to do is to aggressively support punishment, auditing, and whatever else is necessary to ensure that people who cheat are discovered and punished. Yet all too often what we see is leftist politicians justifying cheating behavior, and trying to prevent attempts to discover it and punish it. I'm at heart a leftist, but when I see this sort of pointless stupidity, it's hard not to just give up and let people suffer, accept the consequences of their acting like morons. (Yeah, yeah, the Republicans do exactly the same wrt eg corporate welfare. That's not what we're talking about right now.)

- A society which, having won, against the odds, the prize of widespread trust, then throws it away, doesn't deserve to survive. Is that the direction the US is headed? I've no idea. But I suspect that if the end result of this financial corruption is nothing but some minor cosmetic adjustments --- no punishment for the principals, nothing to ensure it couldn't happen again, still massive disparities between income at the high and low end; then the US is headed for a surprisingly rapid decline in power. No changes to the system will simply affirm the basic principle that it makes no sense to give money to the state (taxes), or anyone else (charity) because they're all just a bunch of thieves; and with no willingness to pay taxes there are severe limits to the US' ambitions.

The point that zAmboni bought up (aka the Observer Effect) makes extrapolating the results of this stufy to the real world difficult.

quote:

In another hint of the nature of this response, the authors describe how a similar study was performed in which the Impunity Game was explained to participants as a series of if/then statements: "if A chooses X and B chooses Y, then A receives $i and B receives $j." Here, when subjects are forced to reason through the conditions to figure out that their rejections didn't cause any sort of financial punishment on the ones making the offer, rates or rejection were about the same as they are in the Ultimatum Game. This suggests that people can't even be bothered to perform a rational analysis when money is on the line, much less engage in rational actions.

Or it could suggest that when a bunch of students are asked to participate in a psych experiment, they aren't really bothered enough to put any conscious brain power into it. That's could be why presenting them with an algorithm did not help... the participants just ignored its existance.

Ultimately it is about respect. We are social animals, and all you've discovered is that 40% of participants aren't willing to be "insulted" by a small amount of money. Getting $10 isn't worth seeming broke, desperate, or completely lacking in self-respect. You also don't see most adults grabbing coins out of fountains, even though the "rational" actor would reach right in and ignore the looks of disgust from everyone else.

Tell someone that the other guy got $10 million dollars, and he can take or leave a million dollars, and I'm pretty sure you'll get a 99.9% acceptance rate. For a million dollars, it isn't insulting to take a dramatically smaller amount.

Originally posted by TheFerenc:Flash edit: gaosuGonglu, It's like those credit card commercials: spite is priceless. But only if you think the spited individual deserves it. Spiting random strangers isn't NEARLY as much fun.

I don't know, there are plenty of random anonymous assholes on the intertubes who would be happy to rip you a new one just for the hell of it. Ditto in online games.

Oh, I didn't mean to imply it doesn't happen. Or that I won't do it if I feel there is something in it for me. It just isn't as fun. Enlightened self interest should be the rule of the game, I think. Basically, do what is best for me. Sometimes, that aligns well with what is best for you. In which case, we both win. Other times, it just doesn't hurt you at all. Occasionally, it does.

Actually, I think there was some random sci-fi show with a people who had this philosophy. Eventually, there are shown to be self-defeating, due to forgetting the enlightened part. I'm just not recalling who they were, or even what show...it was years ago. I just recall being struck how they were similar to my own beliefs, and exceedingly utilitarian.

The author of this article does a very poor job at understanding human behavior. Imagine someone makes you an offer of 20/80 (you get $20, they get $80). Maybe you think it's unfair, and you frankly <em>just don't care</em> about $20. It's not irrational; $20 just doesn't matter enough to you for you to allow someone to treat you unfairly. If the experiment was using $100 million dollars, and the other person offered you 20/80 (you get $20,000,000, they get $80,000,000), then it would actually be accurate to say a person who rejects the offer is irrational. Many people just don't care if they have an extra $20, especially if it means they get cheated/the person who cheated them gets what they want (people have a sense of justice, big surprise there...). It would be like doing the experiment using 10 cents instead of $100. If the number is smaller, the incentive isn't enough for someone to care about having the money or not. The author of this article, and others whose articles I've read on this experiment, always somehow fail to realize this.

Personally, I refuse the smaller amount because it means someone else I might interact with knows they got the better of me, and is better off than me because of a decision that was under my control. I'd rather we both end up equals, as we were before the game started, than give that guy the satisfaction of getting more money AND knowing I would rather take a small pittance than keep some self respect.

Not rational, and maybe self-defeating, but I can't see acting any other way about it. If he/she wants to get that much more money, fine, fuck them, get it from someone else, I'm not entertaining that.

Demonstrate that the Private Impunity Game reflects maladaptive behavior in an anthopolical setting, past or modern, and that'll be something truly significant. In the meantime, it looks like the offerees are simply 'failing' to disregard well ingrained rules in the face of an overly simplistic test.

Wow. So many posts, and people just don't get it.

Its not that it doesn't make sense from an Anthropological perspective. It does, perfectly.

The point is that it completely undermines Classical Economic theory. The point is that people do not make optimal economic decisions, and thus markets WILL NOT be efficient. (and "efficient" means ideal in the manner postulated by Classical Economics). It means that markets will be significantly distorted from the ideal predicted by those models.

If people don't act in a rational manner as predicted by Classical Economics, then you may as well toss the whole model, because it won't make any predictions that apply to the real world.

Except that you didn't end up equals, because instead of you getting a smaller amount you get nothing. Self respect is meaningless in this respect since if I'm the other guy I couldn't care less about how you feel about yourself.

Michael Shermer wrote about exactly this same phenomenon last year, I believe. I didn't see much in the way of attributions in this one, so I hope it's not just a blatant rehash of Shermer's writing on the subject.

guys, rationality in game theory is a concept that depends on the value function chosed.this experiment shows simply that people don't act rationally with respect with monetary value, that's it.this fact would show that (as Cadallin mentioned) basing economy models only on the monetary value and the rationality assumption with respect to it is foolish.

Interesting article! The principle of fairness can be seen working on this new website, (spam deleted). I'm not quite sure how it works, but everytime you make a bid, the price of the item you are interested in goes down! So you hear crazy stories about people buying a brand new car for something like $300. And it is completely fair on everybody! Why be rational?

Originally posted by fil:In the experiment, at least two people are watching, the experimenter and the subject himself. If the subject accepts a small amount of money that he perceives as unfair, it is a blow to his dignity (vis a vis the experimenter) and to his self-respect (vis a vis himself). Walking away is one way to indicate non-participation, and preserve self-respect. Many will refuse, and such refusal can be perfectly rational, it simply indicates that a higher value is placed on other aspects (eg self-respect) than on the amount of money involved. Not surprising in the least.

It's interesting how the emotions surrounding this discussion are framed by the mere description of the experiment.

If some random stranger (Bill) won the lottery, would you refuse if he offered 20% of his winnings to you, on the grounds of "self-respect"?

I don't think many would view such an offer as an insult, yet it's structurally identical to an 80/20 split in the "Impunity Game" where it's apparently common to take offense.

There is nothing irrational about this. The last thing that you want is for someone that is antisocial to have more power. This is actually worse than if you are on an even footing with the jerk. Since money is power, handing over the majority of a limited resource to someone else is tantamount to giving them a leg up. When they prove that they are a complete jerk, it's in your best interest to ensure that they have as little power as possible. Unfortunately this is one of those cases where real life over rides the experiment. People aren't willing to drop these important survival tactics for the sake of the experiment. And, as someone else mentioned, this is an incredibly good strategy to nuke the prisoners dilemma. What's amazing, is that it never occurs to them that people might actually be, you know, social, and care about more than themselves and their own immediate needs. What's truly irrational, in my opinion, is the idea that people should only think of themselves, and only about their gains in the short term, when, in fact, this has shown itself to be a horribly destructive strategy.

It's like you and some jerk both go in for an interview, and you both get hired, but he is your boss. It's probably better to refuse, especially in the case that they won't get their job either.

No, because some random stranger giving away 20% of their winnings in a voluntary manner shows that they are a nice guy. I might even be inclined to refuse the offer. However, if he showed that he were a threat, due to being anti-social, then I would do what I could to make sure his wealth was reduced. This is a survival tactic. You want to help people that are nice, and harm people that aren't so nice. This is a perfectly logical tactic.

If, on the other hand, he were required to give away a percentage, and instead, made an unfair offer, I would refuse it.

quote:

Originally posted by Hack-n-Slash:

quote:

Originally posted by fil:In the experiment, at least two people are watching, the experimenter and the subject himself. If the subject accepts a small amount of money that he perceives as unfair, it is a blow to his dignity (vis a vis the experimenter) and to his self-respect (vis a vis himself). Walking away is one way to indicate non-participation, and preserve self-respect. Many will refuse, and such refusal can be perfectly rational, it simply indicates that a higher value is placed on other aspects (eg self-respect) than on the amount of money involved. Not surprising in the least.

It's interesting how the emotions surrounding this discussion are framed by the mere description of the experiment.

If some random stranger, Bill, won the lottery, would you refuse if he offered 20% of his winnings to you on the grounds of "self-respect"?

I don't think many would view such an offer as an insult, yet it's structurally identical to an 80/20 split in the "Impunity Game" where it's apparently common to take offense.

Originally posted by composer777:No, because some random stranger giving away 20% of their winnings in a voluntary manner shows that they are a nice guy.

How does the "Impunity Game" differ from that scenario?

quote:

I might even be inclined to refuse the offer. However, if he showed that he were a threat, due to being anti-social, then I would do what I could to make sure his wealth was reduced. This is a survival tactic. You want to help people that are nice, and harm people that aren't so nice. This is a perfectly logical tactic.

You are apparently refering to the "Ultimatum Game". In the "Impunity Game", you can do nothing to reduce his wealth.

Here's the problem: reality, unlike computer simulations, rarely contains absolutes. The idea that "I can't win" competes with the idea of "miracles". That's based on our inability to know exactly what's going to happen next, and it appears fundamentally in physics in things like the Heisenberg uncertainty principle. People learn from experience, sometimes bad experiences, that if an offer is rotten enough you force it and try to put some uncertainty into the game.

The lack of objective analysis is also demonstrated by a number of results that indicate that changes in the levels of hormones and neurotransmitters—testosterone, serotonin, and oxytocin, for example—can all skew the statistics by changing the average response to unfair offers.

Okay, this makes me think of a certain Republican governor who rejected bailout money, who likes to attenuate his morality with trips to visit a South American girlfriend. Who'd a thunk this would work at the State level?

The point is that it completely undermines Classical Economic theory. The point is that people do not make optimal economic decisions, and thus markets WILL NOT be efficient.

It only undermines utilitarian economics, by proving what the non-utilitarians already knew: that utility is subjective and unitless, and cannot be measured, compared, or aggregated across individuals.

The non-utilitarian branch of Classical Economics has not been undermined, since it was never based on optimizing some hypothetical objective utility-function in the first place. Rather, it is based solely on the concept of rational self-interest: that people act in a manner which appears--to them, at the time--likely to bring them closer to their internal, subjective goals. These goals need not be rational, or appear so to outsiders. It suffices that very few people persist in acting against their own perceived interests.

Originally posted by qwertybot:Ultimately it is about respect. We are social animals, and all you've discovered is that 40% of participants aren't willing to be "insulted" by a small amount of money. Getting $10 isn't worth seeming broke, desperate, or completely lacking in self-respect. You also don't see most adults grabbing coins out of fountains, even though the "rational" actor would reach right in and ignore the looks of disgust from everyone else.

Tell someone that the other guy got $10 million dollars, and he can take or leave a million dollars, and I'm pretty sure you'll get a 99.9% acceptance rate. For a million dollars, it isn't insulting to take a dramatically smaller amount.

This.

This study is so bizarre in its detachment. I always hated the scenes in Star Trek of Spock and Bones fighting over human behavior not being logical because it always seemed a superficial parody of the clinical detachment of science, but damn if this doesn't reek of it.

I am curious what the results would be if this type of study were conducted across various countries with differeing levels of development. Much of the western world seems to have a sense of entitlement, where we see others who have something and thus feel as though we deserve it to. The fact that the item in question is essentially free only contributes to our need for fairness. In a sense this study is showing that this "sense of entitlement" can become an expensive principle. I am curious if, in a less developed nation, people would pay such a high cost of foregoing free money in order to gain the profit of knowing they have upheld their "moral" standards.

Originally posted by TheWerewolf:I can give you an immediate and concrete example of this behaviour.

When the first Zunes came out, they included WiFi, which allowed two people with Zunes to share music and for any one of them to 'broadcast' music to everyone around who wants to connect to their channel, like a little digital radio station.

...

Now, there are many very reasonable arguments for the iPod over the Zune - and visa versa - but the most surreal argument was that the WiFi feature was a *negative* feature because it had DRM (you could play any song beamed to you three times within three days of receiving it and it could'nt be synced to your computer) and because there were few other Zunes around.

The fact is that the iPod Classic didn't have WiFi at all, and the iPod Touch, which the Zune wasn't competing against, didn't (and still doesn't) allow for music sharing over WiFi in any form. That means that at the very worst - ie: you would never use the feature - it's a tie. Every other outcome is a benefit.

Yet because some people have such a tremendous hatred for Microsoft products and DRM in specific, they perceived the very EXISTENCE of it - even if it has zero impact on them - as a negative.

A purely rational analysis shows that's simply not true.

By buying the Zune, you were supporting DRM. Part of the cost went towards paying for the DRM code. It also shows that you will put up with DRM. For someone who is against DRM, not buying the Zune would be a way to punish someone who supports DRM (in this case, microsoft). All of this going just by your description, I didn't really know about the wifi/DRM thing until I read this.

So, no, a purely rational analysis CAN show that the DRM wifi is a huge negative. It all depends on what you value. If you're only ever going to buy this one product, and then never buy another music related item again, then the DRM probably won't matter to you. But what if you care about the wifi on the Zune 2? What if you care about the DRM on the CD you buy next month? Some people are able to include future decisions when they are thinking rationally. Long term planning is not irrational, thinking that a choice you make today will not effect future events is quite irrational.

Had a similar study talked about in the Econ book. Basically, which scenario would you prefer?

1) you make $50,000 while everyone else makes $40,000

2) you make $100,000 while everyone else makes $200,000

The study said most folks preferred option #1, because they didn't think option #2 was "fair". I guess some folks can "afford" to be moralistic. But when you're starving to death, you'd probably shiv the person next to you for a crust of bread.

Originally posted by Joe Buck:There's a major problem with the term "irrational" as used by classical economists and game theorists. They use the term to describe any behavior in which people aren't maximizing the utility function that the commentator thinks people should be maximizing.

++++++++++++++++++++++++++++++++++++++++++++++

Exactly. Calling this behavior "irrational" makes sense only if you assume that the subjects are trying to optimize their monetary return _only_. That is not in fact what most people are doing in life. They're trying to optimize some notion of "happiness" or "quality of life", in which money plays some part, but many other things are important.

I've been told, flat-out to my face, that optimizing for anything other than monetary value results in a society that must fail. That is, some people believe (stongly) that this 'irrational' behavior actually is irrational, and that people are somewhere between stupid and insane if they engage in it.

I'm not sure what to make of that experience, beyond that some people would prefer to hold everyone to a standard they happen to like whether or not it's 'rational' to expect that people actually can (never mind should) hold to that standard.

...I'm not sure what to make of that experience, beyond that some people would prefer to hold everyone to a standard they happen to like whether or not it's 'rational' to expect that people actually can (never mind should) hold to that standard.

You mean like the people who think I'm insane for getting a Palm Pre instead of an iPhone?

Originally posted by fil:In the experiment, at least two people are watching, the experimenter and the subject himself. If the subject accepts a small amount of money that he perceives as unfair, it is a blow to his dignity (vis a vis the experimenter) and to his self-respect (vis a vis himself). Walking away is one way to indicate non-participation, and preserve self-respect. Many will refuse, and such refusal can be perfectly rational, it simply indicates that a higher value is placed on other aspects (eg self-respect) than on the amount of money involved. Not surprising in the least.

It's interesting how the emotions surrounding this discussion are framed by the mere description of the experiment.

If some random stranger (Bill) won the lottery, would you refuse if he offered 20% of his winnings to you, on the grounds of "self-respect"?

I don't think many would view such an offer as an insult, yet it's structurally identical to an 80/20 split in the "Impunity Game" where it's apparently common to take offense.

As pointed out, these are dramatically different scenarios. In the case of the lottery, Bill has won the money, it is now all his. If he decides to give some away, it is purely an act of generosity, and most people would accept that generosity (unless perhaps they felt Bill would benefit more by keeping the money or giving it to charity instead).

However, in the experiment we're discussing, the money is being given by the experimenter to the _two_ subjects. One of the subjects gets to decide a division, and the second decides whether that division is acceptable to him. Subject 2 is (in many cases) going to feel his role is to evaluate the fairness of Subject 1's decision, and he may reject the money (even if it doesn't affect Subject 1) as a sign that he finds the game unfair, or that accepting a lousy split is a hit to his self-respect. Again, not at all surprising, and not 'irrational' unless one assumes the only rational action is to optimize ones monetary return _only_.

I believe that the refusal of the money, no matter what the rules of the game are, is indeed completely irrational. The concepts of right and wrong or fair and unfair don't even come into play here. It is essentially free money; you did nothing to earn it, you certainly don't deserve it, nor are you entitled to it in any way what soever. It is, in essence, one person being charitable to another. I don't know of a single charity that has ever told someone that their donation isn't large enough so it won't be accepted. The only thing this study shows is that people can be arrogant, greedy and jealous of what others have. Be happy for the charity you receive rather than feel like your entitled to someone else's money.

Maybe not stupid. In the case of the first game, where if the offer is rejected, no one gets the cash... it puts a burden on the offer-maker to make a decent offer that won't be rejected.

If the offer-maker owns that he/she can get away with offer a buck, then that's all that he/she should offer, logically. However, if they know that the offer will be rejected and they will get nothing if it's not a stronger offer... they have a financial incentive to make a better deal.

In the second scenario... it depends on whether the person to whom the offer was made knows that the offerer keeps the loot regardless... if the know, then they'd be dumb not to accept.

It's not whether they know or not, it's how they view their objective.

If they are instructed to "optimize your monetary return only, do not consider any other objective such as your self-respect or social values", and they accept that instruction and try to follow it, then, sure, they are dumb not to accept the money. However, it's not at all clear such an instruction was given. In fact it seems is was not.

Without such instruction, many subjects will perceive that they are to act as they would in the real world, and to many that means rejecting offers perceived as unfair, out of a general social value of fairness in social interactions, or a sense of self-respect etc. It is not irrational to reject or disassociate yourself from conditions in which you believe yourself to be treated unfairly. If we all do this, it leads to a fairer society.

Originally posted by hpsgrad:I've been told, flat-out to my face, that optimizing for anything other than monetary value results in a society that must fail. That is, some people believe (stongly) that this 'irrational' behavior actually is irrational, and that people are somewhere between stupid and insane if they engage in it.

Strange indeed. It would be interesting to hear what they think the evidence for this is, as there has never in human history been a society that even came vaguely close to optimizing for monetary value alone. Maybe drug syndicates or the ruling clans in some third world countries would be examples of something close to this. Edit: Or Bernie Madoff.

I'd say it's pretty easy to see that the opposite is true. In fact, if all people did was optimize for monetary value, that society is pretty much guaranteed to fail. The obvious example of this is having children, which in modern western societies is an enormous expense which rarely repays itself. However, without children the society's failure is but a matter of time.

Not to mention, as others have said, that if people optimize their individual monetary returns at the expense of all social values and norms, trust will collapse, and the basis for a functional modern economy will collapse, and (nearly) everyone will end up poorer.

The Ultimatum Game, as described in this article is not a new experiment. I first learned about it in an undergraduate class in 1999-2000. The experiment has been performed in a variety of cultures worldwide, with varying amounts of money. If I recall correctly, there was only one society discovered in which the participants behaved as game theory would predict (acceptance of the smallest possible division, and offering the smallest possible). Unsurprisingly, as the total monetary value increased, the percentage the offeree would accept decreased. Also unsurprisingly, the portion offered increased. That is, if you're the offeror, and you have a hundred thousand dollars to split, you're much more likely to offer a 'fair' split than if you're only given ten dollars to split.

My professor for this class remarked once that he'd had a conversation with a couple of other Behavioral Economics researchers once about what they would do if they had something like $10 million to split. One professor said he thought he could get away with offering $1 million. Another said he thought he might go as low as $500k. The third researcher said, "You guys must be rich. If it's $10 million, I'm not fucking around. 50/50."

In that class, we learned that the then-current thinking was to include an additional 'fairness' term into the utility function, in addition to the cash payout. This simple modification appeared to be all it took to 'rationalize' the results of these experiments.

From my reading of the article, the Impunity Game and the Private Impunity Game are the new experiments here. The Impunity Game takes the wind out of the 'fairness' argument, by removing the 'fairness' aspect of the game. Since the other player's payout cannot be affected by the offeree, 'fairness' doesn't really come into play. I think 'dignity' is more apt here, as the researchers describe it. I also think zAmboni may have hit an important point in recognizing that the experimenter is an observer to the interaction.

In any case, this was a great article. Ever since I took that class, I've been interested in Behavioral Economics research, and the Ultimatum Game is one of my favorite experiments from that field. Thanks for reporting this!

Originally posted by Scotty Bones:I believe that the refusal of the money, no matter what the rules of the game are, is indeed completely irrational.

That sentence makes zero sense. You can't define what is rational or irrational independent of a set of rules. If the 'rules' are perceived to be 'maintain self-respect at all costs' then obviously rejecting the money is rational.

quote:

The concepts of right and wrong or fair and unfair don't even come into play here.

That is (apparently) left up to the subjects to decide and apparently many disagree with you on this, and don't feel their values should necessarily be checked at the door.

quote:

It is essentially free money; you did nothing to earn it, you certainly don't deserve it, nor are you entitled to it in any way what soever.

Does it really boggle your mind that someone might turn down money in order to maintain their dignity or self-respect? Would you accept a monetary gift from a known drug trafficker? A known bank robber? A known leader of a genocidal regime? Do you really think there's no way in which values other than greed can enter a decision?

quote:

It is, in essence, one person being charitable to another.

No, it is the opposite of that. In the cases where money is being rejected, it's being rejected because Subject 1 is viewed as _uncharitable_ and _unfair_. In the mind of Subject 2, he was given the responsibility of dividing a gift equitably and he did not do so.

Let's say your sibling was in charge of distributing your parents' estate. He decides to keep 99% for himself, and give you 1%. Do you keep the 1%?

quote:

I don't know of a single charity that has ever told someone that their donation isn't large enough so it won't be accepted.

Charities do reject donations from sources they believe to be morally tainted.

quote:

The only thing this study shows is that people can be arrogant, greedy and jealous of what others have.

Ironic that you would call people who value other things ahead of money "greedy".

quote:

Be happy for the charity you receive rather than feel like your entitled to someone else's money.

How is rejecting something a way of saying that you are 'entitled' to it?

Originally posted by Hack-n-Slash:It's interesting how the emotions surrounding this discussion are framed by the mere description of the experiment.

If some random stranger (Bill) won the lottery, would you refuse if he offered 20% of his winnings to you, on the grounds of "self-respect"?

I don't think many would view such an offer as an insult, yet it's structurally identical to an 80/20 split in the "Impunity Game" where it's apparently common to take offense.

As pointed out, these are dramatically different scenarios. In the case of the lottery, Bill has won the money, it is now all his. If he decides to give some away, it is purely an act of generosity, and most people would accept that generosity (unless perhaps they felt Bill would benefit more by keeping the money or giving it to charity instead).

However, in the experiment we're discussing, the money is being given by the experimenter to the _two_ subjects.

I don't see it that way.

In the "Ultimatum Game", is the first subject required to give any money at all to the second?

I'm not aware of such a requirement.

Yes, if the first gives none to the second, the second will reject in order to punish the first; but that's not an option in the "Impunity Game".

So I don't see a *mechanical* distinction between the two scenarios, but rather only a *perceptual* one... .which is what I said in the last post.

quote:

One of the subjects gets to decide a division, and the second decides whether that division is acceptable to him.

If I win the lottery, I have the exact same option; and the guy standing in line behind me can decide whether or not my decision was fair...

Since the first subject has the option of giving no money (or, $.01, if need be) to the second, with no loss to himself, why is *any* offer viewed as anything other than generosity?

The answer of course being the assumption that the money was actually given to *both* players in the "Impunity Game". That assumption emphasizes the sense of entitlement and/or fair play.

I disagree with that assumption.

[Note: In the "Ultimatum Game", the money *is* effectively given to both, since the second player has veto power.]

quote:

Subject 2 is (in many cases) going to feel his role is to evaluate the fairness of Subject 1's decision, and he may reject the money (even if it doesn't affect Subject 1) as a sign that he finds the game unfair, or that accepting a lousy split is a hit to his self-respect. Again, not at all surprising, and not 'irrational' unless one assumes the only rational action is to optimize ones monetary return _only_.

Originally posted by Porter Doran:What's money? Money is nothing; money is shit. What's irrational in these studies is researchers pretending that a paper placeholder for potential value is something more than value enjoyed right now. It's true that surveys show that rich people in our society are conditioned to think of themselves as happier -- but sometimes sanity breaks through shitty, empty conditioning such as that -- sanity, and right and wrong. Suck on that, science.

QFMFT. As far as classical ultilitarian economics not working out, gee, I think current events are pretty much bearing that out.